HSBC 2005 Annual Report Download - page 132

HSBC HOLDINGS PLC
Financial Review (continued)
130
Financial assets other than loans and advances measured at amortised cost – net total credit risk
(Audited IFRS 7 information)
Financial assets against which HSBC had legally enforceable rights to offset with financial liabilities at 31 December
2005 were as follows:
Carrying
amount
Amount for
which HSBC
had a legally
enforceable
right to offset1
Net total
credit risk2
US$m US$m US$m
Trading assets
Treasury and other eligible bills ............................................................... 12,746 –12,746
Debt securities .......................................................................................... 117,659 –117,659
Loans and advances to banks ................................................................... 29,806 (19) 29,787
Loans and advances to customers ............................................................. 52,495 (7,411) 45,084
212,706 (7,430) 205,276
Financial assets designated at fair value
Treasury and other eligible bills ............................................................... 53 –53
Debt securities .......................................................................................... 5,705 (464) 5,241
Loans and advances to banks ................................................................... 124 –124
Loans and advances to customers ............................................................. 631 –631
6,513 (464) 6,049
Derivatives ................................................................................................... 73,928 (46,060) 27,868
Financial investments
Treasury and other similar bills ................................................................ 25,042 –25,042
Debt securities .......................................................................................... 149,781 –149,781
174,823 –174,823
Other assets
Endorsements and acceptances ................................................................. 7,973 (9) 7,964
475,943 (53,963) 421,980
1 Against financial liabilities with the same counterparty.
2Excluding the value of any collateral or security held.
Impairment assessment
Loans and advances (Audited IFRS 7 information)
It is HSBC’s policy that each operating company
makes allowance for impaired loans promptly when
required and on a consistent basis in accordance with
Group guidelines.
HSBC’s rating process for credit facilities
extended by its operating entities is designed to
highlight exposures which require closer
management attention because of their greater
probability of default and potential loss.
Amendments to risk grades, when necessary, are
implemented promptly, with management
particularly focusing on facilities to borrowers and
portfolio segments classified below satisfactory
grades. Management also regularly evaluates the
adequacy of the established allowances for impaired
loans by conducting a detailed review of the loan
portfolio, comparing performance and delinquency
statistics with historical trends and assessing the
impact of current economic conditions. The criteria
that HSBC uses to determine that there is objective
evidence that an impairment loss has occurred
include:
• contractual payments of principal or interest
which become 90 days overdue;
• breach of loan covenants, conditions or other
terms;
• known cash flow difficulties experienced by the
borrower; and
• a significant downgrading in credit rating set by
an external credit rating agency.
Two types of impairment allowance are in place:
individually assessed and collectively assessed.
These are discussed below.
Individually assessed allowances
(Audited IFRS 7 information)
Impairment allowances on individually assessed
accounts are determined by an evaluation of the
exposure to loss on a case-by-case basis. This
procedure is applied to all individually significant
accounts and all other accounts that do not qualify
for, or are not subject to, the portfolio-based